Protection Products

Our world is full of complicated information. And the insurance industry is notorious for creating products that can be hard to understand. I’m sure we’ve all had clients suffer from “analysis paralysis” when trying to decide between multiple solutions. But it doesn’t have to be scary.

As advisors, we experience success when we can break down the complexities into a strong solution that the client can understand. And, believe it or not, it IS possible to simplify the way we help our clients fund a long-term care plan.

Once you’ve talked with your clients about long-term care and helped them understand the value of a written plan, it’s easy to stall out. But a written plan is only half the story. If they decide to use an insurance strategy to fund the plan, they will need our expertise to figure out the best way to proceed.

To keep it simple, there are four main categories to consider when finding the funding. Learning about your client’s complete financial picture will be your guide when deciding which funding option to recommend. And, once you’ve got that figured out, your Ash team is perfectly positioned to help create an individual solution for each client. The key is to choose a funding method that won’t force the client to sacrifice lifestyle or other financial goals.

Let’s look at each option, and which type of client it is most likely to fit best.

Cash Flow: Cash flow is actually more than just cash. This is a good option for clients at or nearing retirement. They might have RMDs that they don’t need, a strong pension, income from a rental property, Social Security or other retirement income. If the client has enough cash flow to fund ongoing premiums without hurting their lifestyle, this can be a straightforward, easy-to-explain option.

Idle Assets: This is ideal for clients with CDs, money market accounts, or cash value life insurance that doesn’t meet their needs anymore. Idle assets, by definition, are assets that aren’t working for the client. Think of them as gasoline still sitting in the pump. Until you put it in the tank, it’s not doing any good. Your clients can use idle assets to fuel their LTC plan.

Qualified Accounts: Qualified accounts are things like IRAs or 401(k) and 403(b) accounts. They are plans that the client paid into with tax-deferred dollars. Clients might be afraid to use these funds because they’re scared of the taxes that will be due when they do. Luckily, there are options to minimize the tax hit when these accounts are used to fund a long-term care product. So it solves two issues—what to do with the qualified money and how to pay for long-term care. Win-win.

Non-qualified Accounts: Because non-qualified accounts are funded with post-tax dollars, there is more flexibility and less concern over taxes with these assets. These are things like non-qualified annuities and the cash value from life insurance. They can be exchanged for LTC products without triggering a taxable event.

As advisors, we’re juggling lots of moving parts to create a solid financial plan. The upside is that by understanding the complete picture we’re in the perfect position to take assets from vehicles that don’t meet the client’s needs and use them to fund a long-term care plan. Because without a solid plan for long-term care, the entire retirement plan is at risk. And that’s something to be afraid of.

When you believe in something, you talk about it. To everyone. Some clients seem to embrace it. Others seem to blow it off. That can be hard, but it seems to be the nature of our business.

For us, that conversation is long-term care planning. We understand why having a plan for the future matters so much. Sometimes it’s hard for clients to grasp. But it’s something we believe in strongly, and a message that we’ve worked hard to share. You may have brought up the topic with your clients and gotten mixed results.

So, when we say have the conversation with everyone, we mean it. But rather than blindly bringing up the need for an LTC plan, it makes sense to start with the clients who will be most receptive to what you have to say.

Not sure who those clients are? Start by looking at their ages and determining which stage of life they are in. In each group, your most likely prospects will share some of the same characteristics.

The common thread: At any age, your strongest prospects are those that have seen first-hand a loved one experience a long-term event. They’re planners. They believe in insurance products and the protection they offer. And they can to afford to purchase those products.

In Their 40s

For this age group, start with high-income earners who are helping parents or grandparents prepare for an emergency. They are dedicated planners who already have life insurance, potentially with high cash values.

Most likely, these clients will seek you out to discuss LTC. The strategy with clients in their 40s is to remind them that buying young costs less and allows for fewer hurdles when it comes to underwriting.

In Their 50s

Your most likely candidates have substantial assets they don’t want to risk losing. They’ve saved and planned. They might be currently helping their parents through a long-term care event, but they no longer have children dependent on them at home.

When approaching these clients, talk about the need to be proactive. Underwriting should still be relatively smooth. Plan to have more than one appointment with them. Use a strategic approach.

In Their 60s

Focus on clients that have enough assets to fund a long-term care plan without invading their retirement income. Look for clients who are relatively healthy and who have idle assets earmarked for an “emergency.”

The message for clients in their 60s is to act before they need extended care. It’s easy to start the conversation because it’s already front of mind for these clients. Let them know you can help reposition idle assets to cover a possible long-term care need and possibly leave a legacy for their grandchildren.

Once you’ve identified who you want to talk to, reach out to your Ash LTC team for strategies and solutions. We’ll help you create a plan that fits for each individual, no matter what stage of life they are in. There’s only one thing you have to do: Just Ask.

In every successful business, there’s always a handful of people you couldn’t do without.

Some are out in front. Others, behind the scenes. Either way, they are the people that make the business go. Without them, the business owner would be lost.

Maybe it’s the top sales person, bringing in more revenue than everyone else. Or the office manager who takes care of the day-to-day tasks — tasks that everyone else doesn’t even realize needed to be done. Or it’s the programmer who provides the skills needed for technology to be an asset instead of a headache. It could be all three.

Think about your business owner clients. What would they do if they lost an irreplaceable person? Would they have to close the doors? Or sell the business?

In our industry, we’re committed to planning for the future. We protect individuals, families and businesses from life’s “what ifs.” We help them prepare financially. And we help them avoid risk whenever we can.

When working with your business owner clients, don’t overlook the need for key person disability insurance.

Getting Started

There’s a good chance that you’ve talked to your business owner clients about purchasing life insurance on key employees. If that’s the case, they’ve already identified those essential people that drive the success of the company. If not, that’s the first step. Talk to your business owner clients and figure out who they consider key employees.

Once identified, discuss what the employer would do without them. Although we often look at life insurance first, there’s a higher chance that the person will become disabled, not die. Fortunately, we can protect against that.

How Key Person Disability Insurance (DI) Works

Key Person DI helps a business owner replace lost revenue when an essential employee becomes injured or disabled. And there are lots of options out there, and lots of ways to customize coverage to fit specific needs.

Most key person DI policies work the same, with the benefit:

Paid directly to the company on an indemnity basis, with no restrictions on how the benefit is used

Received tax free to the business (but the premiums are non-deductible)

Topping out at three times the key employee’s income, or less, depending on how the policy is designed and the carrier options

Paid monthly, as a lump sum, or as a combination of the two

Paid for a benefit period of up to 24 months

Let’s think about that in practical terms. You have a business owner whose key employee is out on a disability, and they aren’t sure how long the illness will last. After personal concern for the employee, cash flow is most likely the next big need. With a key person DI policy in place, it’s a huge relief to know that the business will have cash benefits to spend on hiring a temp or outsourcing certain responsibilities. It means they can stay afloat while still being supportive of the employee. In many cases, it’s the difference between barely surviving and being able to continue to move ahead.

Go Deeper

Get everything you need to know to get started talking about key person disability with your clients. Download our free solution sheet, "Key Person for Non-Owner Employees" for more!

Designing a Policy

We mentioned that there are many ways to design a policy, and we weren’t kidding. But there are some general guidelines to use when figuring out the right level of coverage. And your Ash team is always here to help.

Specifically, you should consider:

Elimination period: How long does the business want to wait before benefits kick in? This is measured in a number of days generally ranging from 90 to 730 days depending on the payout option. The shorter the elimination period, the higher the premium.

Aggregate benefit: This is a derivative of the employee’s salary. The benefit is usually three times the person’s income for the length of the policy.

Benefit payout: A combination benefit can be the best of both worlds. A monthly benefit supplemented by a lump sum payable later can be a great solution if the disability lasts longer than expected. Of course, only monthly or only lump sum are also payout options.

Start Your Discussion

Although nothing can replace an employee that’s, well, irreplaceable, key person DI can offer financial protection. In addition to providing funds for a temporary replacement or to offset the cost of recruiting new talent, a key person DI policy can assure clients and partners that the business is financially stable. And it’s a great employee retention strategy.

Don’t limit your discussion of key person coverage to life insurance. The need for DI protection is just as important — and just as achievable.